Alternative Retirement: Working Or Not Retiring

As we continue to frame out alternative ways to look at retirement and retirement planning I’ve alluded to it being a challenge or puzzle to solve, people by virtue of their circumstances may be forced figure some things out by doing some genuine problem solving. I recently had a conversation with someone (this is unrelated to my work) about another subject that also requires problem solving; I would say longer term problem solving with no immediate resolution likely. The person with whom I was having this conversation could not make the connection to problem solving, I would say the concept was totally foreign but of course that is just my impression of the conversation.

I think the other three posts in this series make the case and offer an explanation as to why this is a problem or challenge to be solved, at least I hope that is the case. Part of solving the problem cobbling together an income to cover basic living (food and a roof overhead) and lifestyle expenses (activities).

Part of planning is figuring out expenses which I would say requires knowing how much you spend now, which expenses are likely to decrease when you retire (hopefully your mortgage, no more saving for retirement after you retire) and which expenses are likely to increase (medical expenses seems like a good choice here).

I would avoid rules of thumb like needing 75% of your pre-retirement income. Chances are you are already living on less than 75% of your income when all taxes, and 401k contributions are factored in. Focus on expenses, figure out if you can live below your means and how your specific expenses will change once or if you retire.

For most people there are probably three accessible sources of retirement income. One is Social Security, another is income drawn from retirement savings like 401k accounts or IRAs and the third is deriving an income from some sort of work.

Social Security is more complicated than you think it is, at least I feel that way. I used to believe I would not get any Social Security but now I believe the benefit the SS Administration says we will receive will be reduced due to means testing. If you have opinions or concerns about your benefit or the viability of the program then you obviously need to plan accordingly.

From above, how much of your expenses will your Social Security benefit cover? One third, 1/4, 1/2, more? If you can figure out how to reduce your expenses then obviously Social Security will go much further which means need less from savings and/or working.

If you have retirement savings and you don’t want to outlive those savings then you need to learn about the 4% rule. This was derived about 20 years ago by William Bengen and essentially if you only withdraw 4% per year then there is about 93% probability that you won’t run out of money; being 85 healthy and out of money would not be ideal. The 4% rule is a building block of understanding or a starting point to learn about this topic. The more you take out the greater the chance of outliving your money. If someone has $1 million that means only taking out $40,000. That doesn’t seem like a lot of money, $40,000, and chances are the person/couple who accumulated that much did not live anywhere near a $40,000 lifestyle. Again the 4% rule is just a starting point, or it can be gospel, but learning how the numbers work is very important.

I’ve written literally hundreds of posts about working one way or another in retirement. The context has always been not having your hand forced into taking a job you don’t want (most people associate this sort of thing with standing on their feet for eight hours in a retail or food service setting).

The primary focus has been monetizing a hobby. Not every hobby can be turned into an income producing activity but if you have been doing something for years then you are in a good position to understand whether or not it can be monetized and how to do it. If it is a hobby then it is something you are doing for free, a lot of people would find it appealing to get paid for something they’ve otherwise been willing to do for free. I’ve used the example of my now former neighbor with the backhoe. It was a life sized Tonka Toy, he charged $60 per hour (maybe the expense was $25-$30 per hour) and had to turn down work. Another friend supplements her income with dog sitting. Other examples have included seasonal work at state or national parks, seasonal work with professional sports teams, in my realm of firefighting there is a lot of work on large wildland incidents that doesn’t involve the manual labor associated with digging a fire line, retired firefighters who go on to do training; there is no limit to the possibilities but the key to think about this early and starting putting things in place early.

There is of course the idea of never retiring. Ideally someone who never retires chooses this route because they love their work. The manner in which they collect Social Security gets a little more complicated along with a couple of other things but someone who can fund their lifestyle with their income they never give up probably won’t run into trouble.

In terms of applying dollars and cents to all of this lets assume a $50,000 annual lifestyle which accounts for everything including very modest traveling. A couple retiring in this decade could easily have a combined Social Security benefit of $30,000 so that $20,000 difference needs to come from somewhere or they can give up a lot of their lifestyle.

Based on the 4% rule, retirement savings of $500,000 would get it done but how many people have that much? In the above scenario a couple either can come up with that $20,000 or not and if not then some part(s) of their desired lifestyle will have to give. If younger retirees can hobby or seasonal work or part time work their way to that $20,000 then that gives whatever amount they have accumulated the opportunity to keep growing and if this couple is lucky enough for this period in their life to come in a year like 2009 where stocks embarked on a six year (and counting) run higher then all of sudden they could go from being under saved to having enough.

In this context five years can be a big difference maker. Obviously not everyone will be lucky enough to work, if they want to for a few years (or more) in the the early years of their retirement but some folks can.

One other point is that $50,000 lifestyle mentioned above might seem like a lot to some people and very little to some others but that is not that point. Everyone has their own number and that is the problem they need to solve. Living below your means helps, reducing that number (whatever it is) helps, putting in the proper legwork to figure out how to supplement income without taking a job you hate will help; this a problem to solve or challenge to overcome and that will take work.